MUB Falls Below NAV, Nuveen Muni CEF Sees Losses

By Michael Aneiro

Muni bonds apparently aren’t waiting for the fiscal cliff and expected 2013 tax hikes before they start selling off. They’ve been doing a good job of posting losses over the past couple of weeks, a trend that carried over Monday when the iShares S&P National AMT-Free Municipal Bond Fund (MUB) lost 0.81% in heavy trading volume, closing at $110.15. The largest municipal ETF is now down from a peak of $114.07 at the end of November and is trading at a discount to net asset value for the first time since July, as Bloomberg’s Michelle Kaske reports today:

The price drop in the fund, which has $3.5 billion of assets, reflects an increase in state and local borrowing that overwhelmed demand in the $3.7 trillion municipal-bond market, pushing up interest rates.

Yields on an index of 10-year benchmark municipals rose 0.22 percentage point to 1.6 percent last week, the highest since Nov. 7, according to Bloomberg data. Issuers from California to New York in the past two weeks issued about $20 billion of long-term debt, the busiest period since June, Bloomberg data show.

Munis face a serious challenge to their tax-exempt status in the form of the fiscal cliff talks in Washington. John Flahive, head of fixed income investments at BNY Mellon Wealth Management, says some investors are selling ahead of possible changes to tax treatment of muni interest and capital gains.